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Generally, a taxpayer is permitted to deduct all ordinary
and necessary expenses paid or incurred in carrying on a trade or
business. See sec. 162(a). No deduction is allowed for
personal, living, or family expenses. See sec. 262.
Consequently, where an expenditure is primarily associated with
business purposes, and where personal benefit is distinctly
secondary and incidental, the expenditure may be deducted under
section 162. See International Artists, Ltd. v. Commissioner, 55
T.C. 94, 104 (1970). Conversely, if an expenditure is primarily
motivated by personal considerations, generally no deduction will
be allowed. See Henry v. Commissioner, 36 T.C. 879, 884 (1961).
Taxpayers are required to keep sufficient records to enable
the Commissioner to determine their correct tax liability. See
sec. 6001. Under certain circumstances, where a taxpayer
establishes entitlement to a deduction but does not establish the
amount of the deduction, the Court is permitted to estimate the
amount allowable. See Cohan v. Commissioner, 39 F.2d 540 (2d
Cir. 1930). However, there must be sufficient evidence in the
record to permit the Court to conclude that a deductible expense
was incurred in at least the amount allowed. See Williams v.
United States, 245 F.2d 559, 560 (5th Cir. 1957). In estimating
the amount allowable, the Court bears heavily against the
taxpayer whose inexactitude is of his own making. See Cohan v.
Commissioner, supra at 544.
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Last modified: May 25, 2011